AARP Finds Most Employers not Embracing Auto-Enrollment

The survey found that the vast majority (94%) of employers reported that they are either “very familiar” or “somewhat familiar” with automatic enrollment in 401(k) plans, and a majority (78%) of employers are familiar with automatic escalation. However, less than half (42%) of respondents said their 401(k) plan includes automatic enrollment, and even fewer (28%) reported that their 401(k) plans have an automatic escalation feature.

When asked why they do not have automatic enrollment for their 401(k) plan, employers without automatic enrollment most frequently cited employee-related challenges such as a concern that employees would not like automatic enrollment (30%), costs (20%), contentment with the status quo (14%), and a lack of information (10%). Asked their reasons for not including automatic escalation in their 401(k) plan, the most frequent responses cited included that the company thinks employees would not like it (66%) and the company thinks employees would find it confusing (52%).

Additionally, one-third of employers without automatic escalation (35%) indicated that the company is concerned about matching costs.

The majority (58%) of employers with automatic enrollment reported that they automatically enrolled only new hires when they first adopted automatic enrollment. Just over one-third (35%) automatically enrolled all non-participating employees who were eligible for the plan.

Of those employers who automatically enrolled only new hires at adoption, only about one in 10 (11%) reported that they have automatically enrolled all non-participating employees at least once since adopting automatic enrollment.

Employers were most likely to identify the following as “major reasons” that companies offer automatic features: It helps employees save more for retirement (74%), it is easier to pass nondiscrimination testing (49%), and it demonstrates that they are a socially responsible company (35%).

Employers that automatically enroll only new hires were asked why they do not automatically enroll all non-participating employees who are eligible for the plan and employee-related challenges were again the reasons most frequently cited for limiting automatic enrollment to new hires.

AARP commissioned Woelfel Research, Inc., to conduct a telephone survey of 806 large employers with 401(k) plans. The survey was fielded December 2009 to February 2010. The full report can be downloaded here.